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The Main Monetary Policy Shock

Author

Listed:
  • Christoph Boehm
  • Husang Kim
  • T. Niklas Kroner

Abstract

We propose a novel procedure to identify a main monetary policy (MMP) shock as the linear combination of monetary policy surprises that best explains macroeconomic fluctuations. Implemented with two standard high-frequency yield-curve surprises and the Boehm and Kroner (2024) non-yield shock, the MMP shock explains nontrivial business-cycle variation over the last 30 years, in contrast with prior findings. Moreover, the MMP shock differs markedly from a textbook monetary policy shock: a contractionary shock leaves interest rates mostly unchanged but persistently lowers headline prices and appreciates the dollar, while temporarily tightening financial conditions and depressing industrial production.

Suggested Citation

  • Christoph Boehm & Husang Kim & T. Niklas Kroner, 2026. "The Main Monetary Policy Shock," NBER Working Papers 36004, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:36004
    Note: AP EFG IFM ME
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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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